A tale of two countries: a directed technical change approach

It is widely recognized that scientific research has a dramatic impact on economies since it is crucial to foster technological knowledge. Today’s migratory movements and concentration of highly educated population and population with high scientific potential in developed countries play an essential role in enhancing research and boosting economic growth. We propose a North-South model that encompasses these empirical facts and proposes explanatory mechanisms. We show how the technological-knowledge gap is hard to reverse, namely when, due to higher returns, the majority of scientists are concentrated in the North. The implications of having either perfect- or no-labour mobility between countries are studied. In addition, it is showed the effect of complementarity or substitutability of goods on scientists’ incentives may allow countries to avoid a poverty trap. The calibrated model provides consistent dynamics with actual data. Scientists’ incentives are highlighted as the main source of divergence or convergence between countries.